A common problem that arises in property insurance claims is the recoverable depreciation associated with replacement cost coverage. Most policies place some limitations on recoverable depreciation.
Some policies have a limit of 180 days to make a claim for recoverable depreciation. Others say: “We will not pay on a replacement cost basis for loss or damage: (1) until the lost or damaged property is actually repaired or replaced; and (2) Unless the repair or replacement is made as soon as reasonably practicable after the loss or the injury.”
Theoretically, the insurance company pays the value of the claim based on the actual cash value. The insured then begins repairs. When repairs exceed the amount paid, the insured applies for reimbursement of the withheld recoverable depreciation from the insurer.
In the real world, insurance companies often fight rather than pay claims that are covered. This means both delays and rejection of claims. Unfortunately, this leads to a breakdown in the process. The insured continues to suffer the loss while fighting the insurer and is often financially unable to repair the damaged property out of pocket. After years of litigation and battles with the insurer to recover the money owed, insurance companies tend to take the position that write-offs are not recoverable because repairs were not completed as soon as reasonably possible after the loss or damage. This argument is a pointless “gotcha”; argument. Realistically, the insurer substantially interferes with the insured’s ability to fulfill its duty to repair as soon as reasonably practicable. Then, after preventing the repairs with delays and claim denials, the insurer hits the insured with the “gotcha” by pointing to the policy provision that prevents recovery of the withheld depreciation because the repairs were not done in a timely manner.
Recently, the District Court of Minnesota found that a failure to repair during litigation is excusable under a policy requiring repairs to be made as soon as reasonably practicable.1 Specifically, the court said:
Here these facts and circumstances show it [the insured] reasonably waited for the coverage dispute to be resolved before committing to over $2 million in compensation work. The delay was due to [the insurer’s] persistent denial of coverage, which included this trial and related appeal, rather than [the insured’s] lack of attention.
The court further noted in footnote 2 that the insured responsibly failed to repair in an effort to preserve the property in light of the ongoing appraisal and inspections.
It’s always a good day when common sense and justice prevail. The lawyers at Merlin Law Group are experienced in dealing with these arguments. If you have any questions or problems with your insurance company, please give us a call.
1 Axis Surplus Ins. Co. v. Condor Corp.No. 0:20-cv-00789 (Dist. Minn. Feb. 3, 2023).